Standard Life savers lose money in 'cash'

Almost 100,000 pension savers have lost an average of £900 each in Standard Life's "cash" fund.

By Emma Simon

4:24PM GMT 19 Jan 2009

The insurance giant, one of the largest pension providers in Britain, has reported that its £2.4bn Sterling Fund has fallen by almost 5pc over the past year.

The fund has proved popular with "safety-first" investors, who have switched into it over the past year to protect their pension savings from volatile equity markets. The cash funds are also used by those approaching retirement who want to shelter their pension from sudden market movements.

In a number of cases Standard Life will have automatically moved investors into this fund as part of a "lifestyling" strategy, which sees money switched from equities into cash and bonds as investors near retirement.

Paul Keeble, a spokesman for Standard Life, said that, like many other "cash" funds, this fund did not guarantee that the unit price could not fall. He added: "Cash funds tend to be far less volatile than equity or bond funds, and offer investors a degree of stability."

However, these funds do not simply park investors' money in a bank or building society account. Instead they invest in a range a financial instruments designed to mimic both the risks and returns of cash.

This will include bank deposits, as well as short-term loans to companies and banks, but may also include riskier asset-backed securities where returns may be linked to the mortgage market.

Tom McPhail of advisers Hargreaves Lansdown warned investors to take a closer look at these funds. "There are different types of cash fund, so pension savers should look closely to see where their money is being invested."

He added: "Where Standard Life went wrong was to use asset-backed securities. They were taking a little bit too much risk with that cash, and in the current climate this has meant that investors have lost money."

Standard Life said it had not misled customers over the nature of this fund. "The value of assets will go up and down in line with market movements and that has always been clear to our customers. We've seen exceptional market volatility and I don't believe any asset classes have been immune from this downturn," it said.

Standard Life isn't the only fund manager to have seen a negative return on its main cash fund. Last year Threadneedle reported similar losses on its Money Securities Fund, another fund that aimed to deliver similar returns to those on cash.

However, some financial advisers have pointed out that fund managers often fail to disclose exactly what type of securities these funds are invested in. John Davey of Bestinvest said: "Most investors have absolutely no idea what assets these funds are exposed to. The information that is in the public domain is awful."

Some advisers raised the prospect of investors gaining compensation if they felt they had been ill-advised about the risks involved in such a fund. Mr McPhail said customers should check carefully what they were told when the investment was sold to them.

A spokesman for the Financial Ombudsman Service said: "If an investor feels they have been misled about the risks of an investment, they can make a complaint about either the product literature or the adviser through the Ombudsman Service. However, they must first raise the issue with the company that sold them the product."

Standard Life said: "We do not believe that there is a case for compensation, but if customers have a particular complaint we will of course consider it."